The latest steep selloff in commodities markets is a buying opportunity, according to Jeff Currie at Goldman Sachs Group Inc., one of the sector’s biggest bulls.
The Bloomberg Commodity Spot Index slumped 3.6% Thursday for its biggest one-day drop in almost 14 months, with soybeans and platinum giving up their gains for the year. The complex has been hit by several bearish factors: the Federal Reserve’s signals on potential interest-rate increases, plus a stronger dollar, Chinese efforts to slow inflation, and rains bringing relief to U.S. crops.
While Currie, Goldman’s head of commodities research, concedes a recovery from the current dip will take longer than other recent rebounds. But in a note to clients on Friday, he pointed to continued physical shortages. He also cited the distinction between moves in “spot” commodities prices based on interest rate speculation and other market talk, versus expectations for future supply and demand.
“The only thing that can fight real physical inflation is rate hikes, not talk of rate hikes,” he said. “The bullish commodity thesis is neither about inflation risks nor Fed forward guidance. It is about scarcity and strong physical demand.”
Still, the latest pullback in commodity prices represents one of the biggest tests yet for the current supercycle thesis, which posits a broad-based rally driven partly driven by a surge in demand for raw materials used in the energy transition. Goldman has predicted rallies in copper and oil and recently said that China has lost the power to dictate prices for key commodities.
Currie said the bank’s “highest conviction long” is oil and it still sees Brent averaging $80 per barrel in the third quarter and possibly jumping well above that level. Global consumption likely increased to 97 million barrels a day in recent days with positive signs in Europe and even India, he added.
Damien Courvalin, head of energy commodity research at Goldman, said that the oil market has a deficit of 3 million barrels per day. While supply has increased after a slump in 2020, output has been slow to ramp up. Meanwhile, global consumption is seeing quicker acceleration, he said. He pointed to a lack of meaningful production recovery from Iran, OPEC countries and shale suppliers.
In terms of copper, Courvalin said that “center of gravity” was shifting in the market, with China no longer being the biggest catalyst for prices. Instead, infrastructure and green-economy plans in the U.S. and Europe will be the driving force behind demand for 2021 and beyond, he said.
(By Simon Casey, with assistance from Cameron Minnard)
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